Upside Down: The $400 Billion Federal Asset Budget Corporation for Enterprise Development September 23, 2010 Eugene Steuerle Richard B. Fisher Institute Fellow The Urban Institute To receive Gene’s regular column, “The Government We Deserve,” send an to:

Two Long-term Goals of Mine (1) To relate asset development policies to principles such as progressivity & efficiency (2) To channel asset research to where the saving takes place and where the subsidies are made Four parts to this presentation: A profile of saving over the lifespan Saving by socio-economic class Private versus public saving How we subsidize saving

Profile of Saving Homes and pensions matter most For middle class, pension saving starts early In fact, much saving can come from simply hanging onto pension assets until retirement For many, asset spend-down also starts with more than two decades of life expectancy remaining Mortgage debt pay-down a traditional (but continuing?) major source of saving CDs and checking accounts often learning tools—not major sources of asset accumulation

Mean Assets of Middle Third of Wealth Distribution For Various Age Groups in 2001/2004 Source: Urban Institute calculations from the 2001 and 2004 Survey of Consumer Finances

Source: Urban Institute calculations from the 1992, 1995, 2001 and 2004 Survey of Consumer Finances and DYNASIM3. Annual Wealth Accrual Per Adult between Early 90s and Early 00s for Typical Households, by Education (2004 Dollars)

Within Cohort Change in Household Wealth over Nine Year Period Source: Urban Institute calculations from the 1992, 1995, 2001, and 2004 Survey of Consumer Finances

Saving by Socio-Economic Class Lower-income classes save only a tiny fraction of what is saved by middle class Saving by black middle class also very low relative to non- Hispanic white middle class Some variables that stand out Almost no stocks & bonds Lower rate of mortgage pay-down Saving in assets with lower rates of return (& less risk)

Ratio of Bottom Wealth Third to Middle Wealth Third for Household Heads Ages Bottom 1/3Middle 1/3Ratio Net Home Equity Ks and IRAs Bank Accounts Net Vehicles Mutual Funds, Stocks, and Bonds Other Assets –Debt … Net Wealth Source: Urban Institute calculations from the 2001 and 2004 Survey of Consumer Finances

Ratio of Black to White Wealth for Household Heads Ages in 2001/2004 BlackWhiteRatio Net Home Equity Ks and IRAs Bank Accounts Net Vehicles Mutual Funds, Stocks, and Bonds Other Assets –Debt Net Wealth Source: Urban Institute calculations from the 2001 and 2004 Survey of Consumer Finances

Annual Wealth Accrual Per Adult between Early 90s and Early 00s for Typical Households by Race (2004 Dollars) Source: Urban Institute calculations from the 1992, 1995, 2001 and 2004 Survey of Consumer Finances and DYNASIM3.

Private versus Public Saving Social Security and Medicare “wealth” dominates all private wealth for close to 2/3rds of population

Mean Value and Composition of Household Wealth Ages 51-61, by Wealth Decile (in 2004 $1,000 dollars) Source: Urban Institute calculations from the Health and Retirement Study

Source: Urban Institute calculations from the 2001 and 2004 SCF and DYNASIM3. Mean Wealth Per Adult for Typical Households Ages in 2001/2004

Source: Urban Institute calculations from combining the 2001 and 2004 SCF and DYNASIM3. Median Ratio of Social Security Wealth to Total Wealth for Households Ages by Income, Education, and Race in 2001/2004

How We Subsidize Saving Tax subsidies accrue to higher income classes since: They face higher tax rates They do most of the saving

Some Tax Expenditures, ($billion) Homes Mortgage Interest$638 Net imputed rental income$224 Capital gains exclusion$216 Property tax deduction$151 Pensions Employer plans$ (k) plans$361 IRAs$ 79 Keogh plans$ 96

Distribution of Subsidies for Mortgage Interest

Distribution of Subsidies for Defined Contribution Plans